The dollar rose to a one-week high on Friday morning following an increase the day before, prompted by stronger-than-expected U.S. consumer price inflation in September.
The DXY, an index that measures the greenback’s value against six peers, increased by 0.1 percent to 106.64. In the previous session, the index saw its most significant one-day increase since March 15, surging 0.85 percent to reach 106.550.
The euro declined by 0.1 percent to $1.0517 after trading 0.85 percent lower at $1.0527 on Thursday. Sterling also fell by 0.1 to trade at $1.2164, despite increasing by 0.3 percent at $1.2213 earlier in the session.
Meanwhile, the yen slid closer to breaching the 150 mark, at 149.60 per dollar. Some suspect Japanese officials may have intervened to get the yen to this level, halting the currency from weakening further.
The Labor Department’s report on Thursday revealed that the consumer price index (CPI) had risen by 0.4 percent on the month and 3.7 percent from a year ago, exceeding Dow Jones estimates of 0.3 percent and 3.6 percent.
Meanwhile, excluding food and energy, the core CPI increased by 0.3 percent on the month and 4.1 percent on a 12-month basis. These figures are in line with expectations. The annual increase in core consumer prices last month was at its lowest point in two years.
This increase was primarily due to the unexpected surge in rental costs. Owners’ equivalent rent, which reflects what homeowners would pay or earn from renting their property, increased despite unofficial sources indicating a drop in rental prices.
While some downplayed the situation, others asserted that the Fed’s goal of achieving a two percent inflation target still needs to be realized.
“The data will keep the Fed on its toes,” said Nicholas Van Ness, U.S. economist at Credit Agricole CIB, as quoted by Reuters.
“While our base case remains an extended pause that lasts into 2024, further upside surprises in upcoming CPI and employment reports could leave a hike on the table for December (or after).”
Deflationary pressures in China
China published its consumer and producer prices on Friday local time, which showed stronger-than-expected deflationary pressures.
The report revealed that the Chinese consumer and producer prices had faltered by 2.5 percent in September from a year earlier. This is the 12th consecutive month the Chinese economy is in negative territory, although the pace has slowed since August. Economists predicted a 2.4 percent fall in September.
According to the National Bureau of Statistics, September’s CPI remained flat year-on-year, missing the expected 0.2 percent gain from a Reuters poll. In August, CPI increased by 0.1 percent. Core consumer prices increased by 0.8 percent year-on-year, consistent with August.
“CPI inflation at zero indicates the deflationary pressure in China is still a real risk to the economy,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “The recovery of domestic demand is not strong without a significant boost from fiscal support.”
Food prices also fell by 3.2 percent year-on-year, contributing to the overall CPI decline. Specifically, pork prices decreased by 22 percent, a more substantial drop than the 17.9 percent decline in August.
On Tuesday, the International Monetary Fund lowered its growth projections for China in response to the ongoing property crisis and sluggish external demand. Despite policy support, China’s real estate sector remains in a severe downturn. The situation has even raised concerns about a potential “Lehman moment.”